Revolts throughout the Arab world are not only shaking up the world, but providing dramas worthy of Academy Awards. Obviously, best actor in a deranged role would go to Libya's Muammar Gaddafi, along with best costume, best staging and best special effects.
His performance certainly has upstaged Egypt's Hosni Mubarak and Tunisia's Ben Ali. Both are supporting actors, given that their appearances were brief and delivered without the suspense involving the future of massive oil reserves.
On Thursday, Saudi Arabia's King Abdullah stole the spotlight. For the past three months, the Arab world has been in turmoil while the King has been in Britain receiving medical treatments. This week his re-entry home involved two high-impact announcements. His government would hand out $36 billion in the form of social, housing and unemployment benefits in order to calm his own countrymen and he'd stabilize oil prices by pumping more.
His Highness then increased crude production immediately in amounts which directly matched the lowered oil production in Libya. Market experts yesterday noted the Saudis hiked production by 700,000 barrels per day which, if true, is precisely the 60% of Libya's 1.2 million barrels per day that's been shut down.
This is smart cartel management. The Saudis are not going to produce a barrel more than need be in order to match supply and demand. They could, but are not, dumping lots of oil onto markets because that would lower prices too much.
The King also said that future supply disruptions would be compensated for, which means that if all of Libya's production is shut down, the Saudis will then increase their production to the 1.2 million per day that's missing. If Algeria falls, it will compensate for that too and so on. They have 4 million barrels a day to spare.
This will support $100 a barrel, which is their new target. That's because $100 represents a $10-a-barrel increase over recent levels which means that the King's $36-billion giveaway to his people will be paid for within nine months. It's a no-lose situation and allows him to continue to bribe His Subjects with our money.
For Canada, higher oil prices mean enhanced GDP growth in the West and lowered rates in those parts of the East that are oil-challenged. It also enhances the economics of the oil sands and should help American oil sands fans push through pipelines to bring the stuff south.
For Americans, higher prices re-launches hand-wringing as to why steps haven't been taken to eliminate dependency on OPEC oil or at least shift it to the friendly neighbors such as Canada and Mexico. This oil addiction self-flagellation, however, is predictable and leads nowhere, probably due to Saudi Arabia's awesome lobbying reach throughout Wall Street and Congress.
But the script that should be paid attention to is that Saudi's King will run the oil world until Middle East tumult threatens his family's power.
It's a scenario that should be more credible than ever and should send North America's three partners into a room for days until they forge a viable, sensible, prosperity-producing continental energy scheme. This would involve resumption of Gulf of Mexico drilling, more conservation measures, a rebuild of Mexico's flagging national oil company to boost production, the fast-tracking of pipelines and projects from the oil sands and the conversion of all trucks, buses, taxis and other large vehicles to natural gas from diesel.
Such measures would replace quickly the five million barrels a day of OPEC exports to North America. And such a policy would deserve geopolitical Oscars for Best Screenplay and Best Picture.
From Diane's National Post blog.